Billionaire Mittal Wins Temporary Reprieve in India Court

Billionaire Sunil Mittal and his company Bharti Airtel Ltd. (BHARTI) (BHARTI) won temporary reprieves in a legal battle over airwaves that’s fueled a 95 percent drop in overseas investment into the world’s second-largest wireless market.

India’s Supreme Court yesterday ordered a lower court to halt proceedings against Mittal, 55, until April 15, when it will next hear his challenge to charges relating to Bharti’s purchase of mobile-phone airwaves beyond the legal limit. Bharti, the nation’s biggest wireless operator, also won a reprieve until April 11 in a case over roaming agreements for third-generation services.

Mittal, who started his business in the 1970s selling bicycle parts, was charged last year with acquiring more mobile- phone spectrum than the government allowed. Overseas investment into India’s telecommunications industry has plummeted after the Supreme Court in February 2012 canceled 122 licenses tied to India’s largest graft case, leading to exits by Bahrain Telecommunications Co. (BATELCO) and Emirates Telecommunications Corp.

“When I heard about this case, I thought ‘Oh, here we go again,’” Taina Erajuuri, a Helsinki-based fund manager at FIM Asset Management Ltd., said of Mittal’s legal battle. “I don’t own telecom stock in India, and that’s for a reason. It’s become too unpredictable, with other places being much safer, without legal or regulatory problems.”

Fighting Charges

India’s Central Bureau of Investigation filed criminal charges in December against Bharti, along with government officials and two other carriers, over purchases of wireless spectrum that led to a loss of about 8.5 billion rupees ($156 million) to the exchequer.

Litigation in India’s telecommunications sector is likely to continue for the foreseeable future, prompting Vishal Agarwal, an analyst for Jefferies LLC in Mumbai, to write in a report that he remains wary about investing in the industry.

Bharti said March 19 the company would fight the charge sheet, calling it “an attempt to tarnish” its reputation.

Bharti (BHARTI)’s shares have declined 15 percent in Mumbai trading in the past 12 months, compared with a 5.4 percent increase in the benchmark S&P BSE Sensex Index. Billionaire Anil Ambani’s Reliance Communications Ltd. (RCOM), the third-largest carrier by subscribers, has lost 23 percent in the period. The court ruling on Mittal was made after market hours yesterday.

Overseas Investment

A three-judge panel headed by Chief Justice Altamas Kabir asked federal investigators to file a reply to Mittal’s petition. In the case against Bharti over 3G roaming agreements, the court told the Department of Telecommunications not to take coercive action against the company until its next hearing.

Foreign direct investment into India’s telecommunications industry shrank to $93 million in the first 10 months of the year ended March 31 from $2 billion a year earlier, according to data from the Department of Industrial Policy and Promotion.

“Mittal’s case along with the 3G rulings are continuing to undermine investor confidence,” said Mohammad Chowdhury, leader of the telecommunications practice at PricewaterhouseCoopers in Mumbai. “India had attracted investment despite local problems because opportunities were far poorer elsewhere, but those cracks in the wallpaper are really showing while the sheen of growth has gone away.”

Declining Profits

New Delhi-based Bharti has seen its profits decline for two straight years while its debt has climbed almost sevenfold since 2010, according to data compiled by Bloomberg. The company raised $1.5 billion last month to help fund $2.3 billion of capital spending after interest costs contributed to a 72 percent drop in net income in the December quarter.

Call rates in India remain among the lowest in the world, and the volume of 3G subscribers remains too small to cover the costs. With 13 operators offering services to 863 million connections in the world’s second-most populous nation, price wars forced voice rates down to as low as 0.5 rupees (0.9 cents) from as high as 16 rupees in 1995.

Vodafone Group Plc (VOD) last month said its application to renew licenses for second-generation wireless services in key Indian cities was rejected by the Department of Telecommunications. The carrier’s Indian unit filed a petition in February challenging the department’s decision to re-auction the licenses, which expire in 2014, to boost revenue.

Vodafone, the world’s second-largest mobile-phone service provider, is also waiting to resolve a $2.2 billion dispute with Indian tax authorities over the 2007 acquisition of Hutchison Whampoa Ltd.’s Indian business.

“Initially, the drop in Indian investment happened because of the 3G auction expenditure when a lull was expected,” said PricewaterhouseCoopers’s Chowdhury, referring to the $19.5 billion that 11 companies bid in 2010 for airwaves to offer high-speed third-generation mobile-phone services and wireless Internet connectivity. “But since then, that lull has sustained, mainly due to diminishing investor confidence because of cases like these.”